News background and trading ideas for 22/10/2018

22 oct 2018

Since Monday fundamentally promises to be a calm day, at least in terms of macroeconomic statistics, we will focus on analyzing the events of the last week and announcements of forthcoming news.

Let’s start traditionally with a news regarding British pound since our basic trading idea - purchases of the pound according to the false appreciation of it fair value by markets - still remains relevant. There were chances that the idea would work itself out last week, but talks between EU and UK have failed again. As a result, the pound not only did not grow but even has sustained minor casualties. This development fully fits into our understanding of what is happening. The parties will pull to the last. So we are waiting for the next summit, which will be held in November (it is possible that it will be postponed even to December to guarantee some kind of outcome - the UK will have to make any decision because there will be no time left). Today Teresa May will speak in the British Parliament, including Brexit issue. Expected, she will admit the progress in the negotiations particularly that 95% of the issues have already been agreed and it’s indeed not long back. This is definitely to the benefit of our trading idea. So we continue to buy a pound.

The important event of the last week was the publication of FOMC minutes. On this front without changes either. Fed confirmed the commitment of the chosen path. This is heartened dollar’s buyers, but stock markets were distraught, which are on the edge of moving into panic sales. Recall, we are recommending to use current sentiments on the markets and earn on it: refers to our recommendations on the purchases of safe-haven assets, primarily gold. The relevance of this idea, in our opinion, was confirmed by the Friday data on China's GDP and industrial production - the data turned out to be much worse than were in the forecast and showed that the Celestial Empire economy is in the worst shape in the last decade.

A few "let down" us on Friday the Canadian dollar. More precisely, not itself, but inflation statistics for Canada, which came out a simply deadly for the country’s currency, as it came out not only below forecasts but also generally in the negative zone (-0.4% m/m with a forecast of + 0.1% m/m). Why is it so bad? The fact is that this week the Bank of Canada meets on Wednesday and, in theory, should make a decision to increase the rate. But after such data, the Central Bank may well change its mind. Well, retail sales (0.1% m/m, with a forecast of + 0.3% m/m) essentially “finished off” the Canadian dollar. However, on Wednesday, everything can radically change if the Bank of Canada will hike the rate. But we'll talk about this up to Wednesday.

Another important event of the upcoming week will be the ECB meeting. The parameters of monetary policy will not change, but it is possible to outline future actions. Moreover, last week was an informational stuffing from one of the officials of the Central Bank that the rate would increase in the 4th quarter of 2019.

Last week the oil was continuing to fall and confirm the fidelity of our forecasts and recommendations for its sale. Actually, it is just a beginning, so there’s still time to sell the oil - it is still extremely expensive. The Russian ruble doesn’t look expensive though but has all chances to decrease yet. So, we are selling it either.